FASB Completes its Financial Instruments Project with the Issuance of Targeted Improvements to Hedge Accounting

Published date01 January 2018
Date01 January 2018
© 2018 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22314
FASB Completes its Financial
Instruments Project with the
Issuance of Targeted Improvements
to Hedge Accounting
Paul Munter
Coming out of the financial
crisis, the Financial Account-
ing Standards Board (FASB)
and the International Account-
ing Standards Board (IASB),
had tentatively agreed that
their respective standards for
financial instruments could
be improved and a converged
standard could improve the
comparability of that informa-
tion across entities by focusing
on the instrument’s contractual
cash flow characteristics and
the entity’s business model to
classify and measure financial
assets and that hedge account-
ing would better reflect an
entity’s economic position if
it was more aligned with an
entity’s risk management poli-
cies. While the IASB proceeded
with this approach in finalizing
its requirements on accounting
for financial instruments,1 the
FASB decided that targeted
improvements to U.S. generally
accepted accounting principles
(GAAP) rather than a more
holistic approach would better
serve its constituents.
The FASB has long
expressed concerned that while
the complexity, risks, and vol-
ume of financial instruments
have been increasing, the appli-
cable accounting and financial
statement disclosure guidance
has failed to keep pace with
those changes. The financial
crisis increased these concerns
and focused the FASB’s and
IASB’s attention on the goal
of providing financial state-
ment users with more decision-
useful information about an
entity’s involvement in finan-
cial instruments and its hedg-
ing activities, while reducing
the complexity in accounting
for those instruments.
The FASB ultimately
decided that U.S. GAAP could
best be improved in stages
by making targeted improve-
ments to:
Classification and mea-
surement requirements
addressed in ASU 2016-012;
Impairment of financial
assets (i.e., credit losses)
addressed in ASU 2016-133;
Hedge accounting
addressed in ASU 2017-12.4
ASU 2016-01
The amendments in ASU
2016-01 will most significantly
affect accounting for invest-
ments in equity securities and
financial liabilities to which
entities apply the fair value
option. Additionally, the
amendments will impact the
presentation and disclosure
requirements that apply to
financial instruments. The
accounting for investments in
debt securities (including loans
and receivables) is unchanged
from previous U.S. GAAP
guidance.5 Accordingly, the

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